Question

Same Scenario as prior question for DEF Corp. Doug, Elbert, and Fran form DEF Corporation by transferring the following: Stock Received From = Transferor Property Transferred 10-Year Notes Doug $75,000 $75,000 $0 Elbert $25,000 $25,000 $0 Fran $25,000 $0 $25,00 Woul Does the above transfer qualify Fran for nonrecognition of gain or loss under Code Sec. 351? O A. Yes, control was obtained in the transfer. B. Yes, transfers to start a corporation are always allowed to exclude gains in transfer. C. No, she did not receive stock D. No, the note disqualifies the transfer.

Answer 1

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No Sec. 351 does not apply here.
Under IRC Section 351(a) a tax consequence can be deferred because no gain or loss is recognized (reported) provided:
ONLY STOCK is exchange for the property, and
You are in CONTROL of the corporation immediately after the exchange.
Fran gets only 10 Year Notes and not control of the company. So sec. 351 does not apply here.